Understanding Home Equity

Put simply, home equity is the part of your home’s value that you own outright. When you have a mortgage, you don’t own the entire home until the mortgage is completely satisfied. Until then, your mortgage lender has an interest in your home as well. As you pay off your mortgage, your equity grows and the lender’s interest decreases until you own the house outright.

Your current home equity represents the property’s value minus the outstanding amount owed to your lender. For example, a home that sells for $600,000 but has a $400,000 mortgage, would have an equity of $200,000 as that is what would be remaining after the mortgage is satisfied.

How to Build Equity as a Homeowner

You can build home equity through making a larger down payment when you purchase the house or by paying down your mortgage balance through regular monthly (or extra principal) payments. Your equity will also increase if your home appreciates in value thanks to a favorable housing market.

Benefitting from Appreciation

Appreciation occurs when market demand rises, the supply of available homes decreases, or a combination of both. Most markets throughout the country are currently seeing historically low levels of home inventory, which has helped bring about big price increases. If you bought your home for $200,000 a few years ago, it may sell for significantly higher than that if prices in your area or neighborhood have increased. You can also help your property appreciate by maintaining, repairing, and making home improvements.

The natural trend for home prices over time is to appreciate, but this is not always the case. When property values depreciate, your equity decreases as well. If it depreciates far enough, you may end up ‘upside-down’ in your home, which means you owe more on it than it’s worth.

At Butler Mortgage, we strive to help you utilize the value you own in your property. Contact us today for guidance and advice so we can sit down with you to create a mortgage plan that suits your needs. Call us today at 407-931-3800.

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